The price transmission in the soybean market

Abstract

The goal of the present paper is to verify how price transmission takes place between the spot market at producer level in Brazil and the future market for the commodity soybeans. For that, we used the following research method: unit-root test, co-integration test, Ganger causality test, estimate of elasticity in price transmission and the mechanism of error correction. The results suggest that there is integration and therefore price transmission between the following pair of variables (markets), as dependent and explicative respectively: spot soybeans / future soybeans. The fact of existing co-integration between such pair of variables is a sufficient condition to affirm the existence of a linear relation of equilibrium for long term for which the system converges, validating the theoretical assumed of the Law of One Price and confirming the integration. In the contemporary relation case between spot soybeans / future soybeans, for each 1 dollar per bag of 60 Kg of variation in the soybeans future market, 70% of this variation is transmitted to the spot soybeans market.